China’s real-estate sector is a key driver of growth and imports of raw materials. A slowdown in investment in the sector is contributing to concern about the outlook for the world’s second-largest economy, and makes China’s real-estate data set one of the most closely watched by investors.

Speaking exclusively to China Real Time, Zhao Peiya, the deputy director of the Department of Investment at the National Bureau of Statistics, offered a glimpse into how China compiles its housing numbers.

Ms. Zhao’s comments show that the National Bureau of Statistics is confident that the data system reflects developments in the market. The comments also identified areas—like affordable housing—where work is underway to bring the system up to date with new developments in the economy.

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China’s real-estate sector is enormous—accounting directly for 12% of gross domestic product, according to estimates by the International Monetary Fund—and changing fast. To capture developments in the sector, data are collected from more than 80,000 real-estate developers and reported up through the county, city, and province statistical system.

“Our checks show that a few developers don’t always report their investment when it takes place. Some might report construction before it has started; some might start work but not report immediately. That’s only a small number and shouldn’t affect the overall accuracy of the data,” said Ms. Zhao.

A pilot project underway in Chongqing since 2011 is exploring ways to ensure investment is reported in the month it takes place. Real-estate data are currently reported on a year-to-date basis. For example, data for total investment in the first three months of the year will be reported this month, but the numbers won’t break out investment that took place specifically in each month.

Click on the chart to enlarge.

The NBS aims to move from the “year-to-date” system to a “current-month” system, and to test the feasibility of producing a measure of month-on-month growth rates—giving a fuller sense of the current momentum of the sector.

Collecting data on the government’s flagship social housing project is also a challenge. In his report to the National People’s Congress in March, Premier Wen Jiabao promised the government would start work on seven million affordable homes in 2012, after 10.43 million units were started in 2011.

Analysts say the level of investment in affordable housing is a key variable determining the growth rate of the Chinese economy, and demand for construction materials like iron ore. Ms. Zhao says that affordable housing is a relatively new area for the NBS. In 2011, the NBS working together with eight other departments put in place a system to promote accurate and timely reporting of data.

“There’s a lot of different types of affordable housing, and lots of different departments involved, so we needed to take a united approach,” said Ms. Zhao. That system is currently at a trial stage.

“All affordable housing investment conducted by real-estate developers is included in the real-estate investment data” said Ms. Zhao. Some construction that is undertaken by non-real estate firms—for example slum redevelopment—is captured in the overall investment data, but not necessarily in the real-estate investment data.

A key concern for investors is China’s overhang of unsold property. A trip around virtually any Chinese city reveals hosts of half-finished tower blocks waiting to be completed and sold. Analysts fear that excess supply could put a dent in prices, and reduce the real-estate investment that is a key contributor to China’s domestic demand.

Official data show 2.98 billion square meters of residential property under construction at the end of February. Wall Street Journal calculations show that is more than two square meters for every person in China and enough to satisfy demand for almost the next three years without a single extra apartment being built.

Ms. Zhao cautions that the real-estate-under-construction figure covers a wide variety of different projects. “Newly started projects, projects where construction is ongoing, and projects that have paused and then restarted are all included in the data”, she said.

“Some projects might be under construction in the reporting period, then construction could stop.”

The wide variety of different projects included in the under-construction figure means that while some might be about to come to market, others might not do so for an extended period.

A glimpse at developers’ own views on the outlook also suggests that fears of a sudden collapse in construction activity might be overdone. A survey of 30 residential real-estate developers by Standard Chartered published last week found that more than two-thirds were planning to either increase construction or hold activity constant in the next three months.

Stephen Green, China economist at Standard Chartered, was cautiously optimistic about the results of the survey. “We didn’t look at some cities like Tianjin and Dalian where overcapacity is highest, but what we are seeing is that real-estate construction is pretty stable” he said.

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